The Delhi High Court recently held that “issue conflict” by itself is not enough to disqualify an arbitrator unless there is concrete evidence of bias or prejudice [Steel Authority of India Limited v. British Marine PLC]. 

Issue conflict refers to concerns that an arbitrator who has taken a position on a legal issue in a prior arbitration involving the same or related parties may be biased and unable to decide the same issue with an open mind in another arbitration. 

Justice Jyoti Singh ruled that that merely because an arbitrator has decided an issue in another arbitration where one party may be common to the arbitration in question, it cannot be held that there are justifiable doubts on the impartiality of the arbitrator.

“It must be shown that Arbitrator’s ability to decide the issue arising in the second case is clouded and that he will not be able to approach the issue with an open mind so as to do justice to the party,” the Court said. 

Justice Singh explained that in several standard-form contracts, like franchise or power purchase agreements, arbitrators often decide issues such as delay, force majeure and liquidated damages. Merely giving a ruling on such matters earlier does not disqualify an arbitrator from hearing a similar dispute later, unless there is clear proof of bias or lack of impartiality, the Court said. 

“Law does not treat mere prior knowledge of a subject or decision on the issue as per se bias, unless it is coupled with proof that having prejudged the issue, the Arbitrator will decide the same with closed mind and subjectively or that on an earlier occasion the Arbitrator was not impartial or independent."

The Bench made these observations while dismissing petitions filed by the government-owned Steel Authority of India Limited (SAIL) challenging an arbitral award in favour of British Marine PLC. 

The dispute arose out of a long-term contract of affreightment (COA) signed in 2008, under which British Marine was to transport coking coal to India for SAIL between June 2008 and December 2012. SAIL allegedly failed to provide cargo nominations as required under the COA, prompting British Marine to terminate the contract and seek damages.

In 2018, the arbitral tribunal, by a 2:1 majority, found SAIL in breach of contract and awarded British Marine approximately US$30 million in damages, along with interest. SAIL contested the award, alleging bias in the composition of the arbitral tribunal and error in interpreting contractual clauses.

SAIL’s primary ground was that two arbitrators - Captain SM Berry (Presiding Arbitrator) and Niranjan Chakraborty (British Marine’s nominee) - were disqualified due to “issue conflict,” having earlier interpreted similar contractual terms (Clause 62) in another arbitration between SAIL and SeaSpray Shipping Company in favour of the latter.

After considering the case, the High Court said that Berry and Chakraborty were not de jure ineligible on the ground of issue conflict. 

The Court said that even though the two arbitrators had dealt with the interpretation of Clause 62 in the SeaSpray arbitration and taken a particular view, this by itself was not enough to disqualify them in the absence of evidence that they would “decide the issue with a closed mind and without any objectivity or were not impartial in the earlier arbitration”. 

“Objection of the Petitioner is mere presence based and no cogent material has been placed which shows that the two Arbitrators were partial or decided with a predetermined disposition. This contention is thus rejected,” the Court noted. 

It also rejected SAIL’s objections to the calculation of damages and interest, observing that the arbitral tribunal had adopted a sound methodology based on contractual freight rates, prevailing market conditions and quantities shipped.

Senior Advocate Rajshekhar Rao along with Advocates Sidhartha Sharma, Arjun Asthana, Yashraj Samant, Ajay Sabharwal, Shalini Basu and Nachiket Chawla appeared for SAIL.

British Marine was represented through Senior Advocate Ramesh Singh as well as Advocates Sumit K Batra, Anupam Dhige, Manish Khurana, Hage Nanya and Priyanka Jindal. 

[Read Judgment]